Countries which took other routes, such as the Philippines' patronage democracy which emphasized political values at the expense of the economy, Burma's Buddhist and military regimes which emphasized cultural and security values at the expense of the economy, and Sukarno's Indonesia which emphasized international influence and domestic political gamesmanship at the expense of the economy, experienced domestic fragmentation and international vulnerability. Those countries which emphasizes economic priorities gradually acquired the resources to calm domestic political quarrels and to defend themselves from foreign aggression of subversion. China has learned the same lessons more slowly and painfully. Politics in command has given way to economics in command. Import substitution has given way to export-led growth. Autarky has given way to a welcome of foreign trade and investment much warmer than in, for instance, the Philippines or even Indonesia. Capital grants are giving way to interest-bearing loans. Monopoly is giving way grudgingly to competition. Priority for heavy industry has given way to priority for light industry.

While China's economic liberalization is far advanced, its political liberalization has just begun. Most of the liberalization has come not from changes in government policies, but rather from changes in social structure over which the government has very little control. 30 years ago, China was a caricature of totalitarianism, worse than Hitler's Germany in the degree of control over individuals. Everyone wore the same blue clothes. Everyone wore nondescript hair cuts. The women looked like the men. Political indoctrination classes constituted a major aspect of life in China. Children where thought to spy on parents. Neighborhood committees kept everyone under constant surveillance. Vogel describes some of the emotional aftermath of the political struggle that immediately preceded the era of reform:

"Some liberated cadres were too old to return to work, and many of those still of working age were so debilitated emotionally that they found it hard to follow routines. It took years for many people to take a real interest in their work, and fears had not fully dissipated a decade later".

Today in China people speak relatively freely; even government officials in Beijing bitterly criticize  their top leaders in front of near strangers, whereas this would have been a death sentence before. The totalitarian aspects are fading; more time is devoted to production and less to political classes. Efficiency and expertise are valued more and political correctness less. Foreign magazines and newspapers are widely available; anyone who can read English can buy Wall Street Journal or the International Herald Tribune at a hotel newsstand. Life style have been transformed in China. Religion has become open. Traditional Confucian temples are being built or refurbished, and Christianity is spreading everywhere in China. If the media are more lively than they have been several years before it is the result of economic reform, not a result of political reform. Now the Chinese Communist party says: as long as you don't curse us, and as long as you don't demand that we step down, you can say anything you want. In Guangdong province, with the economy furthest advanced, people wear Hong Kong fashion, listen to Hong Kong radio, and watch Hong Kong television via illegal satellite dishes that are installed by the local military units; members of the army technical units make most of their annual income from installing and maintaining these illegal dishes, which pour subversive Hong Kong subversive ideas into every household. Large foreign Joint ventures in China frequently still have Party secretaries, but they have been given the job of making sure that corporate productivity policies are fully implemented. The ironic fate of the Communist Party boss in the modern Chinese enterprise is to ensure that foreign capitalist policies are faithfully followed by obedient workers. One of the more amusing problems of economic reform has been coping with excessively high wages paid by foreign firms. Traditional ideology held that the multinational corporations must be expelled to avoid exploitation of the workers. As it happens, the multinationals pay so much more that the state enterprises and the Chinese government that everyone wants to work for the foreign firms. Beijing responded by putting limits on the wages foreign firms could pay. The multinational responded by providing workers with a wide range of benefits. Beijing in turn demanded that the multinationals collect heavy taxes on the benefits. As a group, the multinational refused. Now only the american unions are left to continue the tradition of denouncing the multinationals for running awful Asian sweatshops.

China has still a long way to go but no other country has progressed more rapidly in the improvement of peoples lives during the past decades.

The emergence of Chinese Financial Markets

The way China handled the development of capital markets illustrates its broader strategy of reform. The Chinese authority responded to the concrete needs of the economy rather than to a master ideological blueprint. They permitted extensive local initiative, even at times ratifying initiatives that explicitly contravened central directives (as it was the premature opening of the Shenzhen Stock Exchange). The Chinese authority let institutions like the bond market develop organically, and somewhat chaotically, then stepped in to regulate them when they felt they understood the needs of the economy and the options for regulation. In all this, China's reform constituted the sharpest possible contrast to some of the East European reforms, where institutions were frequently expected to appear magically overnight. Apparently, much of Western academia has spent so much time focusing on the mathematical manipulation of market models that it has forgotten the institutional assumptions behind the market models: a western legal system, Western accounting techniques, perfect information provided to accountants by firms and by accountants to a financial communications network that embraces much of society, a population which has been educated to receive and understand such information, and many others.

One Soviet privatization proposal was to allocate equal amounts of vouchers to all citizens and then suddenly to sell the nation's industries to holders of the vouchers; somehow the citizenry was expected to make rational decisions without any experience in valuing companies and without any systematic information to guide decisions.

In China, the emergence of capital market responded to specific problems. Without a share system, enterprises could not distribute their profits equitably. Without a bond market, price reforms led to massive inflation. Without treasury bonds, the government could not finance vital infrastructure programmes. Without stocks and enterprise bonds, China's successful enterprises could not raise adequate capital to sustain their growth. Without a system of bank loans, rather than socialist grants, the government could not control its capital expenditures and allocate them efficiently.

BOND MARKET

Issuance of government bonds in China began in 1981. By 1989 the Chinese state's need to raise founds for development projects, to finance its rising deficits and to soak up inflation-causing excess liquidity had stimulated the issuance of 54 million RMB worth of government bonds. They where sold both to institutions and to individuals.

By the end of the decade, in Mainland China, the forms of state-issued bonds had proliferated: government bonds, treasury bonds, special project bonds, and value guaranteed bonds with interest rates indexed to inflation.

Financial and economic changes led the owner of bonds to need to trade them, and to trade them a prices reflecting market conditions as well as the face value of the bonds.

In a free market, when interest rates raise, the principal value of old bonds falls, and vice versa when interest rates decline. Chinese authority allowed the emergence of such secondary market, in 1988, and allowed trading only by security companies, trust and investment companies and other specially approved by the government. Chinese Government bonds were followed by enterprise bonds. Starting from 1985, many enterprises began issuing their own bonds to the public.

Widespread issuing of bonds by enterprises created serious problems. Chinese People confused bonds and shares.

Growth of both stock and bond markets is exponential. In December 1990 China opened a world class nationwide computerized bond-trading network, the Securities Trading Automated Quotations System (STAQS). In 1991 the central bank began using securities companies as underwriters; each securities company committed itself to sell a certain amount of bonds and to buy any unsold remainder of its allocation. The underwriting system avoided the resentment created by forced allocation, and it also soaked up pools of money that otherwise could have suddenly flooded into purchases of goods and caused serious inflation. Also in 1991 China began large-scale issuance of yen bonds, and in 1992 it began issuing US dollar and Hong Kong dollars bonds, both through Bank of China and through large enterprises that required foreign exchange. By doing so, it raised foreign currency from its own people as well as from foreigners, thereby reducing any potential future problems in raising foreign exchange. In February 1992 Standard and Poor's began rating China's foreign debts by Western standards.

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